Identifying the UBO: Methods for Business Organizations

With growing Complexity and stringent legal requirements throughout the world, it has become important for firms and organizations to find the Ultimate Beneficial Owner (UBO). Whether you are starting a new client relationship or trying to assess your client for compliance purposes, knowing who owns a business is important. However, how does a company learn who this is, and what resources and methods are available to understand and discover the UBO?

In this article, you will learn more about how exactly this check works, the importance of technology and what can businesses do about UBO identification.

What is UBO?

Before diving into the tools and techniques, it’s essential to understand the basic concept: What is UBO? UBO or Ultimate beneficial owner is described as the natural person or persons, who have control over a company whether directly or indirectly. This is not always the official company director or shareholder, but can be another person who has a strong impact on the company’s decision-making process, or benefits from the company’s operations.

UBO check does not only determine just the names of the shareholders or the board of directors. It involves a process of establishing, who stands to gain most from a company, even if he/ she is a shareholder behind legal persons/ other persons.

Why is UBO Identification Important?

It preferable for businesses to know who the UBO is to avoid issues such as fraud, money laundering, or financial crime among others. It has become common to have main regulations that demand companies to do the UBO check within KYC and AML protocols. Noncompliance has tough legal consequences as well as adversative impacts on its reputation. Consequently, a properly performed UBO check contributes to establishing trust, compliance with requirements, and the creation of a safe business partnership.

Software for Performing a UBO Check

In particular, Hedge Fund Managers state that the identification of the UBO beneficial owner can be a herculean task given the rise in corporate structures. Thankfully there are various solutions in the market for the purpose of the UBO check which helps organizations to manage the compliance requirements and mitigate operational risk.

1. Automated Regulation Solutions

Many solutions including KYC solutions and AML systems integrate automatic tools for the identification of the UBO. Such systems capture information from different registries and databases which enable businesses to perform efficient UBO check in the shortest time. Some of these tools use artificial intelligence and machine learning features to analyze the ownership structures with a view of detecting what is wrong with corporate hierarchies.

Popular compliance platforms often include features like:

• Data gathering from government Web sites using automated tools.
• Additionally, it receives confirmation that a given UBO is on any of the authorized lists.
• What can help us achieve near real-time risk risk and reporting needs?

2. Global Corporate Registries

Businesses also need to obtain information from global corporate registries for their UBO check. Business registers contain official information about shareholders, directors and often beneficial owners of the company. By comparing the information received from one jurisdiction with the information received from another jurisdiction, businesses can ensure that all information about their client is correct and identify the ultimate beneficial owner of the companies.

3. Blockchain Technology

Blockchain technology is making its way to the UBO identification process as a possible key player. In its consequence, blockchain can help businesses to better understand where the money has gone and who the UBO beneficial owner is due to the creation of a transparent and non-adjustable chain of ownership and deals. Although currently in its infancy, the use of blockchain-enabled tools holds significant promise for reforming the UBO checks that companies undertake.

Strategies of Recognizing the UBO Beneficial Owner

A UBO check is not a simple process of inputting data into a system, let alone an IT system. Businesses also have to use some methods and practices to increase the efficiency of identifying the right person and to be compliant with rules and regulations to achieve the goal.

1. Tracing Ownership Structures

The greatest difficulty in searching for the UBO’s ultimate beneficial owner is usually the issue of ownership, particularly when many holding companies or trusts are involved. However, a complete UBO check also involves inspecting ownership down to the persons who own the given entity regardless of whether they own the shares directly or indirectly.

For instance, this approach of a check will help determine who actually controls 70% of Company A since it engages 80% of Company B which in turn owns 80% of Company C.

2. Cross-Border Data Analysis

That is why when implementing the measures concerning the UBO checks regarding the companies acting in several countries, it is necessary to navigate the requirements of the legislation and the registers of several countries. These rules are often different depending on the country and it is unclear how clear the records of the companies are. Specifically, in some countries, those companies are required to provide information about their UBO, whereas in others, this information is kept behind layers of corporate structures. The use of the multi-jurisdictional approach is inevitable in such cases.

3. The Value of Trusts and Nominee Companies

Some companies try to hide under the umbrella of the UBO beneficial owner by using nominee shareholders or a trust system. In such situations, companies are required to look not at the names of the shareholders listed in the articles of incorporation but study the contracts that specify who receives the profits or assets.

For instance, if a trust owns a company, then the beneficiaries of the trust can be taken to be the UBOs although they may not feature in any of the records of the company.

Legal and Administrative Asinthes and the Significance of the UBO Checks

There is increased pressure to identify UBOs and amplify the scrutiny placed on them by the regulations before the law to retain their compliance. The UBO check is a crucial link in anti-money laundering and countering financing for terrorism as laws all around the globe. International authorities like the Financial Action Task Force (FATF) specify that when getting to know their customers, companies have to apply stringent UBO identification regulations as part of the CDD procedure.

Within the European Union, the 4th and the 5th Anti-Money Laundering Directives require companies to identify and verify their PEP/UBO and those not following those rules may face severe sanctions. Others like the United States through the Corporate Transparency Act, expect businesses to reveal their UBO ultimate beneficial owner to federal authorities.

Challenges and Best Practices for UBO Identification

 It has not however been so difficult to establish the UBO. Some common hurdles include:

Complex Ownership Structures: Structure ownership chains allow for the creation of numerous ownership layers that render it challenging to determine the RUBE.

Limited Access to Data: However, other commonality legal systems in some countries might have a rude bowl legal requirement on transparency and hence result in restricted access to information on companies.

Nominee and Trust Structures: For purposes of understanding the true identity of the UBO, nominee shareholders and trustees may hide the true identity of the UBO thereby necessitating further examinations.

To overcome these challenges, businesses should:

• Utilise tools that allow a semi-automate check on the UBO.
• The ownership should be cross-jurisdictional verified.
• Adopt the best KYC/AML standards to meet both legal and international requirements.

Conclusion

As a result, running a comprehensive UBO check is very essential for any organization that wishes to establish credibility, BET with its clients, conform to the existing legal requirements as well as avoid financial losses. Although obtaining their identity is a legal requirement when starting a business, companies are bound to meet the UBO beneficial owner and prevent supporting fraud or other unlawful actions. While compliance with regulations increases, businesses should remain vigilant in the identification of UBOs employing both basic and high–end methods.

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